AIMD-93-22 Financial Audit: Panama Canal Commission's 1992 ... · B-114839 Scheduled Termination of the Commission As provided by the Panama Canal Treaty of 1977, the Panama Canal

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Panama Canal Commission’s 1992 and 1991 Financial Statements

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GAO United States General Accounting Office Washington, D.C. 20648

Comptroller General of the United States

B-114339

September lo,1993

To the President of the Senate and the Speaker of the House of Representatives

This report presents the results of our audits of the Panama Canal Commission’s financial statements for the years ended September 30,1992 and 1991, its internal controls, and its compliance with laws and regulations.

The Commission is a federal executive agency that was established on October 1,1979, to carry out the responsibilities of the United States with respect to the Panama Canal Treaty of 1977. The Commission will operate the Canal until the Treaty terminates on December 31,1999, when the Republic of Panama will assume full responsibility for the Canal.

We are required by the Panama Canal Act of 1979 to conduct an annual audit of the Commission’s financial statements. In our opinion, the Panama Canal Commission’s financial statements present fairly, in all material respects, its financial position as of September 30,1992 and 1991, and the results of its operations, changes in the investment of the U.S. government, and cash flows for the years then ended, in conformity with generally accepted accounting principles.

Also in our opinion, internal controls in effect on September 30,1992, provided reasonable assurance that losses, noncompliance, or misstatements material to the financial statements would be prevented or detected. Our 1992 tests for compliance with the provisions of selected laws and regulations disclosed no material instances of noncompliance, and nothing came to our attention in the course of our work to indicate that material noncompliance with such provisions occurred. Our audit was conducted in accordance with generally accepted government auditing standards.

During the course of the audit, we also identified several matters for improvement in data processing and other operations which were not material to the financial statements. These matters are being communicated for the Commission’s consideration in a separate management letter.

Page 1 GAO/AIMD-93-22 Pantuna Canal Commission

“3 ,’

_i .,,

-. B-114839

Scheduled Termination of the Commission

As provided by the Panama Canal Treaty of 1977, the Panama Canal Commission will terminate on December 31,1999, when the Republic of Panama will assume full responsibility for the management, operation, and maintenance of the Panama Canal. The Treaty provides that the Canal be turned over in operating condition and free of liens and debts.

To do this, the Commission needs to recover all of its costs from its revenues. The Commission operates as a rate-regulated utility, with approximately 73 percent of revenue obtained from tolls and the remaining 27 percent from nontoll revenue, such as navigation fees and electric power sales. The President of the United States serves as the rate regulator for tolls, which are established at a level to recover the costs of operating and maintaining the Canal. Early retirement and worker injury compensation benefit costs are being funded from Canal revenues on an accelerated basis so as to be fully funded by 1999.

Results of Operations $3.6 million, compared to net operating revenue of $3.6 million for fiscal year 1991. The net operating loss for 1992 was deferred as unearned costs to be recovered from subsequent revenues.

Prom 1988 through 1992, toll and nontoll revenues increased an average of 3.1 percent annually. Fiscal year 1992 total operating revenues remained almost constant at $506 million, down only 0.2 percent from fiscal year 1991. This was due to a slight decrease in the number of oceangoing vessels transiting the Canal during fiscal year 1992. Nontoll revenue, which consists primarily of navigation fees and electric power sales, increased slightly to $139 million during fiscal year 1992, up less than 0.9 percent from 1991.

From 1988 through 1992, total operating expenses increased an average of 3.1 percent annually. Fiscal year 1992 total operating expenses increased to $509 million, up 1.3 percent over fiscal year 1991. Most operating costs remained fairly constant between 1991 and 1992. Some of the highlights were the following:

. Tonnage payments to the Republic of Panama decreased 1.5 percent in 1992, due to a slight decrease in ocean-going traffic.

l Cost of maintenance of channels, dams, and spillways increased 13.2 percent over 1991, due to dredging of Canal waterways and overhauls of equipment.

Page 2 GAO/AIMD-93-22 Panama Canal Commission

B-114839

. Supply and transportation services expense decreased 18.6 percent in 1992 principally because of a one-time $6.6 million increase in 1991 to the allowance for excess inventory. This adjustment was revised to $6.2 million in 1992.

. Administrative and general costs increased 2.8 percent in 1992 due principally to normal inflationary trends and an increase in the payments to the Department of Labor for Federal Employee Compensation Act benefits. These increases were offset in part by lower than expected costs for other employee benefits.

l Depreciation expense increased by 21.4 percent in 1992 due to an increase in the capitalization of work in process, principally transit and communication facilities and equipment. Other increases to depreciation expense resulted from studies made to determine the adequacy of the service lives of certain assets.

Assets, Liabilities, and Between September 30,1991, and September 30,1992, total assets of the

Capital Commission declined by 3.7 percent to $824 million, and total liabilities declined by 8.1 percent, to $352 million. U.S. government capital declined slightly, from $473.2 million to $472.3 million. The most significant changes in individual account balances for this period were the following:

. Property, plant, and equipment (excluding depreciation) increased by a net $16 million in 1992 to $1,038 million. This increase was due primarily to the more timely capitalization of construction costs, offset in part by retirements and transfers of excess assets to the Republic of Panama and other U.S. government agencies. Capital additions to plant included maor items such as $8.1 million for replacements and improvements to facilities, $3.1 million for the Canal widening/straightening program, $3 million of improvements to electric power and communication systems, $2 million for motor vehicle replacements, $1.9 million for replacement of launches b and launch engines, and $1.1 million for replacement of an anchor barge.

. Current assets decreased in 1992 by $6 million to $167 million, due primarily to lower cash balances caused by the $3.6 million operating loss in fiscal year 1992, a $2.1 million decrease in accounts receivable, and a $1.7 million decrease in fuel inventory.

. Deferred charges declined by $17 million in 1992 to $169 million, primarily due to amortization of deferred charges for early retirement and workers’ compensation benefits.

. Current liabilities decreased in 1992 by $14 million to $130 million, primarily due to the settlement of several long-standing marine accident


B-llrl!HtO

claims and the payment of a fuel oil purchase for which payment was pending at the end of fiscal year 1991.

l bong-term liabilities decreased $22 million in 1992 to $159 million, primarily due to the amortization of employee benefits.

Treaty Related Costs We are required by the Panama Canal Act of 1979 to include in our annual audit report to the Congress a statement listing (1) all direct and indirect costs incurred by the United States in implementing the 1977 Treaty, net of any savings, and (2) the cost of any property transferred to the Republic of Panama. The act also provides that direct appropriated costs of implementation should not exceed $666 million, adjusted for inflation over the life of the Treaty.

As part of the required annual audit, U.S. government agencies which provided services to the former Panama Canal Company and Canal Zone Government provided the net cost information required under the 1977 Treaty. This information is presented in unaudited supplementary schedules to the Commission’s financial statements. Prom fiscal years 1980 to 1992, the net reported costs to the U.S. government under the Treaty amounted to $648 million, which is less than the act’s inflation-adjusted target of $1,261 million as of September 30, 1992.

As required by the Panama Canal Act of 1979, we are sending copies of this report to the President of the United States and the Secretary of the Treasury, Also, we are sending copies to the Director of the Office of Management and Budget, the Secretaries of State and Defense, the Acting Secretary of the Army, the Chairman of the Board of Directors of the Panama Canal Commission, and the Administrator of the Panama Canal Commission.

Acting Comptroller General of the United States


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Contents

Letter 1

Opinion Letter

Fhancial Statements Statements of Financial Position

12 12

Statements of Operations Statements of Changes in the Investment of the United States

Government Statements of Cash Flows Notes to Financial Statements

14 15

16 17

Supplementary Information (Unaudited)

Schedules of Treaty Related Costs Schedules of Property, Plant, and Equipment

23 23 27

Abbreviations

FECA Federal Employees’ Compensation Act FMFIA Federal Managers’ Financial Integrity Act



GAO United States General Accounting OfThe Waehiugton, D.C. 20648

Comptroller General of the United States

B-1 14839

To the Board of Directors Panama Canal Commission

Our audits of the Panama Canal Commission found

l the fBcal years 1992 and 1991 financial statements to be reliable in all material respects;

l internal controls on September 30,1992, to be effective in protecting assets, assuring material compliance with budget authority and with laws and regulations, and assuring that there were no material misstatements in the financial statements, and

l no material noncompliance with laws and regulations we tested for the fmcal year ended 1992.

Each of these conclusions is outlined in more detail below. This report also presents unaudited supplemental information and discusses the scope of our audit.

Opinion on Financial The financial statements and accompanying notes present fairly the

Statements Commission’s

l assets, liabilities, and capital; l operating revenue and expenses; l changes in the investment of the United States government; and . cash flows.

Opinion on Internal Controls

The internal controls we evaluated were those designed to

. safeguard assets against loss from unauthorized use or disposition; b

l assure the execution of transactions in accordance with budget authority and with laws and regulations; and

l properly record, process, and summarize transactions to permit the preparation of financial statements and to maintain accountability for assets.

Those controls in effect on September 30,1992, provided reasonable assurance that losses, noncompliance, or misstatements material in relation to the financial statements would be prevented or detected.


B-114889

Compliance With Selected Laws and Regulations

Our tests for compliance with the provisions of selected laws and regulations disclosed no material instances of noncompliance. Also, nothing came to our attention in the course of our other work to indicate that material noncompliance with such provisions occurred. Finally, nothing came to our attention to indicate that management’s reports on internal controls prepared under the Federal Managers’ Financial Integrity Act (FMF-IA) conflict materially with the results of our evaluation of internal controls. The Commission reported no material weaknesses in its 1992 mm4 report.

Unaudited Supplementary Information

The treaty related cost schedules are presented as required by the Panama Canal Act of 1979, and the schedule of property, plant, and equipment is presented for purposes of additional analysis. We obtained treaty related cost data from other federal agencies and reviewed it for unusual fluctuations from amounts previously reported. Accordingly, we express no opinion on the schedules of treaty related costs, While we do not express an opinion on the detailed schedule of property, plant, and equipment, this information is consistent with the financial statements taken as a whole.

Objectives, Scope, and Methodology

Management has the responsibility for

l preparing financial statements on the basis of accounting principles described in note 1 to the financial statements,

l establishing and maintaining internal controls and systems to provide reasonable assurance that the broad control objectives of FMFLA are met, and

l complying with applicable laws and regulations.

We have the responsibility to obtain reasonable assurance about whether the financial statements are reliable (free of material misstatement and presented fairly in accordance with applicable accounting principles) and relevant internal controls are in place and operating effectively. We also are responsible for testing compliance with provisions of selected laws and regulations and for performing limited procedures with respect to unaudited supplementary information appearing in this report. Our work was done in accordance with generally accepted government auditing standards.


B-114839

In order to fulfill these responsibilities we

. examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements;

l assessed the accounting principles used and significant estimates made by management;

l evaluated the overall presentation of the financial statements; l evaluated and tested relevant internal controls which encompassed the

following cycles: l financial reporting and budgeting, l treasury, l inventory, l fixed assets, l revenue, l expenditures, and l payroll;

l tested compliance with certain provisions of the following laws and regulations: l Panama Canal Act of 1979, 9 Anti-deficiency Act, l Prompt Payment Act, and l Accounting and Auditing Act of 1950; and

l considered compliance with the process required by FMFIA for evaluating and reporting on internal control and accounting systems.

We did not evaluate all internal controls relevant to operating objectives as broadly defined by FMFIA and implementing guidance, such as those relevant to preparing statistical reports and ensuring efficient operations. We limited our work to accounting and other controls necessary to achieve the objective outlined in our opinion on internal controls. Because of inherent limitations in any system of internal control, losses,

b

Page 10 GAOiAIMD-93-22 Panama Canal Commission

B-114839

noncompliance, or misstatements may nevertheless occur and not be detected. We also caution that projecting our evaluation to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with controls may deteriorate.

Acting Comptroller General of the United States

May 6, 1993


Financial Statements

tatements of Financial Position

8optmmber 30, 1992 &nd 1991 (Dollars in thousands)

ASBETA mu

PROPERTY, PLANT AND CQUIPMENT: At comt . . . . . ..*.*.................................... $1,038,128 $1,022,626 Lesm wcumuhtod doprooiation and valuation allowanaem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..."... 548.905 525,303

489.229 497.323

CURRENT ABBETS: C~sh................................................. Accounts rmcolvablo . . . . . . . ..a........................ Invantoriosr

124,542 127,135 9,567 11,687

Btorohouso, 18~ l llowanc8 for obsoletr and WCE~I~ inventory of $6,200 and $6,467, roopsctivoly......

Pus1 . . . . . . . . . . . ..I................................. Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28,708 28,732 3,479 5,168

2% 2Q5

166.531 f72.921

DEFERRED CtWWES: Early ratirmmont bonofitm............................ 106,008 121,152 Compawation bonafftm for work injuries.............. 54,346 59,530 RmA.rwmt benefits to cmrtbin former amployeem...... 4,673 5,178 Unrecovarod costm dua from mubsaquant rwmuss....... 3,56j

168.596 185.860

TOTAL A8SETS........................................... $ 824.35Q S 856.lJQ

Tbo 8ccompmying notes are an integral part of this statement.


Flnancial Statimenta

Smptmmbmr 30, 1992 l nd 1991 (Dollarm In thourmndm)

CAPITAL, Invmrtmmnt of the Unltod Statmm Oovornmmnt:

Intormmt-bmmring (9.786% and 9.9491, rorpctlvoly) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-intmrmmt-bmaring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CURRENT LIAEILITLLSI Accountm payablma

Cof~~rci.~l vmndorm and other....................... 14,404 17,706 U.S. Oovmrnmmnt l gmncimm........................... 2,172 1,905 Rmpubllc of Pwmma . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..I.. 9.06Q 6.02~

Accrumd liabilitimm: dmploymms’ lmavm . . . . . . . . . . . . . . ..*.................. Salmrimm and wagem . . . . . . . . . . . . . . . . . . . . . . ..**..*.... Early rmtirommnt bmnmfitm . . . . . . . . . . . . . . . . . . . . . . . . . . Compmn8ation bmnmfitm for work injurlmm............ Rmtirmmmnt bmnmfitm to cmrtain fommr mmploymmm.... Employoms' rmpatriation . . . . . ..*.................... Mnrinm aacidmnt 016imr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nmt opmrating rmvmnum payablm to Rmpublla of Panma Othmr . . . . . . . . . . . . . . . . . . ..I.........................

Othmr currmnt l~~bilitimmr Working capital contributiona...................... Capital contributionm - unmx9mndmd................. Othmr . . . . . . . . . . ..*..**.............................

54,257 6,767

16,144 9,093

626 731

12,593

zk.E

2,000

50,590 4,826

15,144 8,460

692 785

21,034 879

2%

9,079

xkz

147.992

DEFERRED CREDIT: capital contributionm bming unortirmd................

LONO-TERN LIABILITIES AND RFAERVESz fmrly rmtirmmmnt bmnmfitm ............................ Compensation bmnmfitm for work injurimm .............. Rmtirmmmnt bmnmfits to cmrtein formmr mmploymma ...... Employmmm' rmpatriation .............................. Lock ovrrhmulm ....................................... Harinm aocidmntm and casualty 1orSms ................. Floating l quipmmnt ovmrhaulr .........................

TOTAL CAPITAL AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 5824.350

$122,271 $120,557

62.5Q 57.76Q

90,864 106,008 46,253 51,070

4,047 4,406 S,762 6,121 2,082 1,957 8,000 8,000 3.a 3.532

481.17%

The accompanying notmm are In intmgral part of thim mtatmmmnt.

Page ia GAO/AIMD-93-22 Panama Canal Commission


;tatemento of Operations

limcal Ymarm Lndmd Smptuabmr 30, 1992 and 1991 (Dollarm in thoumandm)

OPtRATING REWNUXSr Tollm rmvonum .......................................... Lmom - Working aqital oontributionm ...................

- Capital contributions ........................... Nmt tollm rmvmnum ....................................

Othmr rmvmnumm .........................................

Tot&l opmrating rmvmnuoa .............................

OPICRATINO EXPtNSllS: Pmymmntm to Rmpublla of Panama;

Public l mrviaom . . . . . . . . . . . . . . . . . . . . . . . . . . . ..*.......* Tixmd annuity . . . . . . . ..I.............................. Tonn4ge..............................................

Wmlntmnanom of channmlm, dmmm &nd l pillwaym ............ Nmvigmtion l mrviao wad oontrol......................... Loakm opmsation ........................................ Omnmral rmpir, l nginmmring and auintmnmnom rmrvicmm ... lupply and trrnrportation mmrvicmr ..................... Uti1itimm .............................................. Adminimtrativm and gmnmrml ............................. Dmpreai4tion ........................................... Firm and faaLlity protmction ........................... Intmrort on intmtmmt-bmaring invmmtmmnt ................ Other ..................................................

Total opmrating l xpmrmr .............................

Nmt OpmrMA.ng Rmvonum (Lomm) .............................

Rmcovmry of prior ymmr lommmm ............................

NET UNEARNED COSTS TO SE RECOVERED FROM SUBBIOQUENT RE~NULS...............................................

NET OPPRATINQ REVENUE PAYABLE TO REPUBLIC OF PANAMA......

Thm wzcompenying notma arm an intmgral part of this atatmrnmnt.

$368,663 (2rQDQ)

366,663

86,563

40,330 84,768 51,766 25,098 19,425 35,932 80,812 27,635 14,707 11,492

30.7op

199.142

(3,569)

&

511.569)

$374,625

L5.929) 368,696

w.721

10,000 10,000 67.592 07,593

35,626 86,221 63,778 25,715 23,851 31,772 78,576 22,665 13,351 11,544

3,588

L2.713) 875


Financial Statemente

tatsments of Changes In the Investment of the United States Government

ILmcal Ywrr tndod Sopttior 30, 1991 and 1992 (Dollarm in thounando)

INVtSTMENT AT OCTOBER 1, 1990...............

CNANOES IN INVESTNENT: txpendlturmm from Panama Canal Rovolvfnq

Fund..................................... Tolla and other rwJeipt# dmporit@d into

Pmma Canal Revolving Rand.............. Net chmnqo in undmpomitmd recoiptm........ Adjumtmmntm for propmrtiom provioumly

trmnmfarrmd to RopublLo of Pmnuna........ property tranmforrmd to other U.S. covornmnt l qmv2ima...........,,.........

INVESTHINT AT SEPTEMBER 30, 1991............

INVRSTHLNT AT OCTOBER 1, 1991...............

CHANOES IN INVESTMENTr kxprndlturom From Panmma Canal Revolving

Fund..................................... Tolls l nd other rocalpta depomitad into

Panama Canal Revolving Fund.............. Not chanqa in undapomltod recoiptm........ Property transforrod to the Republic of Pmn~~....,...................,,,.......~

Adju~tmwit~ for propartiom prwloumly ttenmimrrod to Rmpubllc of Panama........

Property trmmforrod to other U.S. Oov*rnmmnt l qencfom......................

INVSSTXtNT AT SEPTEMBER 30, 1992............

1991 IV

Intaromt- Non-Interwat --

s135.176 S340.663

503,009 (503,009)

(515,001) 515,001 (33)

(53)

(564) A

AAzAw 11.959

$120.657 - 5352.622

3992 InvPefed

Intclrest- Non-Intsrost --

S120.557 S352.622

511,772 (511,772)

(509,091) 509,091 39

(812)

(6)

1149) d

1.7U (2.642)

5122.271 $349.900

The accompanyinq noter are an integral part of this statement.

s473.839

(33)

(63)

IJ64)

A)

S473.179

Total

tXLid.2

39

(812)

(6)

(149)

-1

S472.252


:

Financial Statemente

;tatements of Cash Flows

FL#cbl Ymarm Endad September 30, 1992 and 1991 (Dollwe in thousende)

CASH FLOWS PROI OPtRATINg ACTIVITIES:

Net operating rovonuo (low) ...........................

Working capitel contributions ..........................

Adjumtmentm to reconcile net rwenum (loma) to not cash provided by oporatfng l ctivitiom: Depraciation ......................................... Net ohango in reeorvee and other ..................... Changom in operating amotm and liabilltieer

Decraamo Ln receivablom ............................ Docroare ifI inventorias ............................ (Increaee)/dmcremea in other ammete ................ Increme/(dmorerme) in liabilities .................

Total l djumtmont8 ................................

Net camh provided by operating activities ..........

CASH FLOWS PROM INVRSTING ACTIVITIES:

Capital oonttibutionm .................................. Capital expendLturee ...................................

Net cash wed in inverting l ctFvitie9 ..............

Net Lncrease/(decroaro) in camh ..........................

Cash, beginning of year ..................................

CASH, END OF YEAR ........................................

Lee2

S(3.569)

2.QQQ

27,539 (840)

2,120 1,513

(29) (5.727)

24.771

23.203

L25.796)

(25.796)

(2,593)

12'1,135

ucisa.2

22,685 2,4f5

1,644 6,100

A.2 37.351

5,929 114.214)

L28.285)

12,654

AJA.481

S122.135

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Camh paid during yeer for interomt..................... s11.691 $11.562

The accompanying notem LII) an integral part of this statement.


I ! ,,>..l


totes to Financial Statements

The Panama Canal Commission (~*Commieeion~8) is an agency of the Executive Branch of the United States Government, provided for by the Panama Canal Treaty of 1977, ("Treaty") and establimhed by the Panama Canal Act of 1979 ("Act") enacted September 27, 1979. The commission was established to carry out the responsibilities of the United States with respect to the Panama Canal under the Treaty. In fulfilling these obliqatione, the Commission manages, operates, and maintains the Canal, its complementary works, installations, and equipment, and provides for the orderly transit ot vessels through the Canal. The Commission will perform these functions until the Treaty terminates on December 31, 1999, at which time the Republic of Panama will assume full responsibility for the Canal, which shall be turned over in operating condition and free of liens and debts, except as the two Parties may otherwise agree.

The oparation of the waterway is conducted on a self- financing basis. The Commission is expected to recover through tolle and other revenues all costs of operating and maintaining the Canal, including interest, depreciation, working capital, capital for plant replacement, expansion and improvements, and payments to the Republic of Panama for public servicer, and annuities. Rsvenues from tolls and all other nourcee are deposited in the U.S. Treasury in an account known a8 the Panama Canal Revolving Fund. The resources in this fund are available for continuous use and 8erve to finance Canal operating and capital programs which are reviewed annually by the Congress. Information on obligations and outlays of the Commission's Revolving Fund are included in the Budget OS the United States Government.

1. SUUNARY OF BIGNIPICANY ACCOUNTING POLICIES.

A summary of significant accounting pOliCieS follows:

a. ACCOUNTINQ AND REPORTINQ. The accounts of the Commission are maintained pursuant to the Accounting and Auditing Act of 1950. Under this Act, the Comptroller General of the United States preecribeo the principles, standards, and related requirements to be met. The Commission maintains its accounts in accordance with generally accepted accounting principles and followe STATEMENT OF FINANCIAL ACCOUNTING STANDARDS No. 71, @@Accounting for the Effects of Certain Types of Regulation."

Page17 GAO/AIMD-93-22PanamaCanalCommission

Financial Statementa

b. RIDCIABsIIIc&TIO#s. Certain amount8 for fiscal year 1991 have been reclassified to conform with the current financial statement presentation.

0. COST RSCOVRRY. The baeilr for toll@ rates (8@etatutory tolls formula@@) is prescribed in oection 1602(b) of the Act and providee:

@*Tolls shall be preecribed at rates oalculated to produce revenue8 to cover as nearly as practicable all costs of maintaining and operating the Panama Canal, together with the facilitiee and appurtenances related thereto, including unrecovered costn incurred on or alter the effective date of thin Act, interast, depreciation, working capital, paymento to the Republic of Panama pursuant to paragraph 5 of Article III and paragraph 4 (a) and (b) of Article XIII of the Panama Canal Treaty of 1977, and capital for plant replacement, expansion, and improvements. Tolls shall not be prescribed at rates calculated to produce revenues sufficient to cover payments to the Republic of Panama pursuant to paragraph 4(c) of Article XIII of the Panama Canal Treaty of 1977."

Unrecovered cooto for any year are to be recovered from revenues in subsequent years.

e. PPOPXRTY, ?LAXT, AND YQUIPMYXT. Property, plant, and equipment are recorded at coat. The cost of minor item8 of property, plant, and equipment is charged to expense as incurred. Adminirtrative and other related general expenses are recovered currently and not capitalized.

Depreciation of Commission property, plant, and equipment is provideti;s$ng the straight-line method over the estimated service Of the depreciable assets. Composite depreciation is provided for premature plant retirements. Provision8 for depreciation, expressed as an annual percentage of the coet of average depreciable property, plant, and

equipment in 8ervic0, were 3.41 percent in 1992 and 2.90 percent in 1991.

The recurring coats of dredging the WaterWay are charged to expenea. Non-recurring dredging coats for substantial improvements and bettermante to the waterway are considered

Page 18 GANAIMD-92-22 Panama Canal Commiesion

FisancIeI Statements

additions to plant and are capitalized and depreciated over their estimated service lives.

CAPITAL CONTRIBUTION6. The Board of Directors may grog&n a portion of tolls in excess of depreciation for plant replacement, expannion, or improvements. Such funds are connidered capital contributions from Canal users. utilization,

Upon these contributions are amortized through an

off8et to depreciation expense in an amount calculated to approximate the depreciation on assete acquired with such contributions. In finCal year 1992, no amount was programmed. For fiscal year 1991, $5.9 million were programmed.

i!. WORRINO CAPIQAG. The Board OS Directors may program a portion of tolls as contributions for working capital. Such funde are wed to finance increases in amounts for storehouse inventorier, rimarily a8 a result of inflation. Working capital contr butione in fiscal year 1992 were $2.0 million. P No contributions were programmed in fiscal year 1991.

Q- nccoIJNTs RICIlIVABLP. Uncollectible accounts are recognized as a reduction in revenue when written off.

h. INVBNTORIBS. Operating materials and supplies are etated at average cost, plus cost OF transportation. Allowancea are provided for the estimated cost of obsolete and excese stock.

I. RBTIRENINT BBNEIITS. Employer contributions to the United States Civil Service Retirement System, the Federal Employee Retirement System, and the Republic of Panama Social Security System ere charged to expense when paid. The Commission has no liability for future payments to employees under these systems.

Non-United States citizen employees, who retired from predecessor agencies prior to October 5, 1958, receive benelite under a separate annuity plan. Payments made under this plan are recorded as a current year expense. Annual amounts expended for this plan were $1.0 million and $1.1 million in fiscal years 1992 and 1991, respectively. The liability for future annuity payments is reflected in the Statement of Financial Position as "Retirement benefits to certain former employees" and an equal amount is recorded as a deferred charge.

Page 19 GAO/AIMD-93-22 PanamaCanaICommission

-- Financial Statements

As required by the Act, the Commission is liable for the increase in the unfunded liability of the United States Civil Service Retirement Fund for benefits payable to employees and their survivors under the early retirement provisions of the Act. The deferred charqe and liability recorded in these statements reflect the payments due to the Office of Personnel Management over the life of the Treaty. The annual installment of $15.1 million to liquidate the increased liability is determined by the Office of Personnel Management. The gross amount to be recovered from tolls over the remaining life OS the Treaty was $106.0 million as of fiscal year 1992 and $121.2 million as of fiscal year 1991.

j . REBBRVEB . Reserves required to normalize expenses for incorporation in the tolls process are provided for through annual charges to operations. These reserves cover such irregular costs as lock overhauls, floating equipment overhauls, probable losses from marine accidents, fire, damages other than fire, public liability, and other casualties.

k. EOUSIUG UBB RIQNTB. No monetary value is assigned to the rights granted to the United States Government by the Republic of Panama to use Canal Area housing transferred to the Republic of Panama under the terms of the Treaty. The cost to manage, maintain, and provide livability improvements to these quarters is charged to expense. Rental income is included in other revenues.

1. COEPBESATION BENEFITS FOR WORK INJURIEB. The Federal Employees' Compensation Act (FECA) provides compensation for performance of duty injuries for eligible employees. The costs of the FECA program are recognized over the remaining life of the Treaty.

2. BUDQETABY RESOURCES.

a. Cash, accounts receivable, and the borrowing authority are the resources used by the Commission to determine its solvency position. Incurring obligations in excess of the solvency position would be a violation of the Antideficiency Act.

b. The Commission has authority to borrow funds from the U.S. Treasury up to $100.0 million. No funds were borrowed during fiscal years 1992 and 1991.

3. UERBCOVERED COBTS DUE FRON SUWEQUENT REVENUES.

The $3.6 million net loss from fiscal year 1992 operations was deferred as an unearned cost to be recovered

Page 20 GAO/AIMD-93-22 Panama Canal Commiesion

,’ .I

FinanchlStatementa

from subsequent revenuee. As such, it must be deducted from any future net operating revenue due the Republic of Panama.

4. NET R8VNUB OAYUBLC TO REPUBLIC OF PANANA.

As of September 30, 1989, cumulative unrecovered costs Srom prior years operations were $9.7 million. Of that amount, $7.0 million was recovered in fiscal year 1990 and $2.7 million wa6 recovered in fiscal year 1991. The balance of net operating revenues earned in fiscal year 1991 of $0.9 million was paid to the Republic of Panama in April 1992.

5. ALLOllUQCB8 IOR OBBOLOTB AND EXCE88 BPQCX.

The allowance8 for obsolete and excess stock provide for: (1) the specific disposal of individual inventory items likely to occur; and (2) the systematic cost recognition for inventory items retained for possible use, but whose actual UBB most often does not occur. During fiscal year 1991, a comprehensive evaluation of inventory items that are infrequently isnued, but retained for poseible use, wae completed. Thin evaluation indicated a requirement for an allowance of $5.6 million for these items. The evaluation completed for fiscal year 1992 indicated reduced requirement of $5.2 million and the allowance was adjusted accordingly.

6. COUPGU8ATIOlJ BBNEPITB POR WORK INJURIEB.

The Commission administers a program to compensate certain employees for death and disability resulting from performance of duty injuries or illnesses as set forth in the Federal Employeee' Compensation Act. All United States citizen employees are eligible for coverage, as are non-United States citizen employeee hired prior to October 1, 1979. As provided by FECA, employees and certain dependents are beneficiaries for various periods that can extend to life.

The liability and deferred charge recorded in these statements reflect the payments due to a Department of Labor fund establiehed pursuant to Public Law 100-705. The Department of Labor will be reimbursed from this fund for all expected futura payments for accidenta, adjusted for inflation and interest earned. An evaluation, as of September 30, 1991, was prepared by an independent actuarial firm. The values in that report were used to adjust the assets and liabilities at year-end 1991. The report also served as the basis for determining the adequacy of the assets and liabilities at year-end 1992. The groes amount to be recovered from tolls

Page21 GAO/AIMD-93-22 PanamaCanal Commission

FinancialStatements

over the remaining life of the Treaty to retire this liability is $54.3 million in fiscal year 1992 and $59.5 million in fiscal year 1991.

7. IWTICRIBT-BBARINO IRVRBTYENT OP THE UNITED 8TATE8 QOVMLNT .

The intereat-bearing investment of the United States Government in the Panama Canal is determined based on section 1603(a) of the Act. The interest-bearing investment of the United States Government was $122.3 million at September 30, 1992 and $120.6 million at September 30, 1991.

8. COHTINblaCNT LIABILITIC8 AND CONMITMENTS.

The Commission is a defendant in certain legal action8 related to personal injury, employment disputes, and other matters related to the Commiesion's business. In the opinion of management, the settlement of these legal actions will not have a material adverse effect on the financial position of the Commission.

Commi tments under uncompleted construction contracts and unfilled purchase orders amounted to 544.4 million at September 30, 1992 and $31.7 million at September 30, 1991.

Cash depositori

and negotiable securities held by United States es for the Commission to guarantee payment by third .-.

parties of their obligations were $15.3 million and $14.5 million at September 30, 1992 and 1991, respectively.

The Treaty provides that an annual amount of up to $10.0 million per year be paid to the Republic of Panama out of operating revenues to the extent that such revenues exceed expenditures. If the operating revenues in any year do not produce a surplus sufficient to cover this payment, the unpaid balance shall be paid from operating surpluses in future years. The balance contingently payable to the Republic of Panama amounted to $120.2 million and $110.2 million at September 30, 1992 and 1991, respectively. However, as set forth in the Treaty and in the Act, nothing shall be construed am obligating the United States Government to pay, after the date of termination OS the Treaty, any unpaid balance accumulated before such date.

Page22 GAWAIMD-93-22 PanamaCanalCommission


Schedules of Treaty Related costs

Department of Defense I DOD) Coete Gavinas) Throuah N 1 QQ2

U.S. Army See0 Operation CommunicaUons Commissary Transportation Teohnical Aerlstance Health Services Dlsporttion of Remelns Criminal lnveetigations Tropical Test Center Procurement of Equipment Miltwy Construction Mililary Pay ports- - Family Housing Operations Executive Agent Costs

Total U.S. Army 562,5#,162 66,243,0?1 626,749,233

81Q4,161,960 32.626,773

9,791,954 2,QO7,103

380,240 157,766,576

3,674,Q69 Q=,*

=5,- 3,046,769

36397,791 96,091,171

166,666 14,430,964

9,695,152

$23,246,979 764,642

70,604 7,146

0 19,774,206

633,657 99,362

0 0

14,275,21: 0

1,Qi 1,941 5,257,OOO

costs Q/30/92

$217,430,959 33,591,615

9,662,756 2,914,249

360,240 177,540,762

4,706,526 1,032,766

35,406 3,046,769

36,397,791 110,366,365

165,666 16,342,925 14,952,152

U.S. Air Force 41,124,950 2,746,536 43,673,466

U.S. Navy 1,580,203 519,700 2,099,903

DOD Dependent Schools* 27,692,OOO 6,397,OOO 34,069,000

Defense Mapping Agency Ll56,764 0 kl56,764

Total DOD $634.062.079 975906.3OQ $709.970399

l Obligatlons incurred rather then actual expenditures


., .,;’ ‘. 8 .” “.

‘(

, I t ._‘<. ..


@n-DOD COW ($avlf)g& Throuah FircalYear 19Q2.

A&L%EY

Stata Dapartmont

Fedora1 Aviatbn Admlnirtration

American Battle Monuments Commioslon

Panama Canal Commiralon

Qenwal AccOunthQ ol&o

Smithaonlan froplcai Rorearch Institute

Qorgas Memorial Laboratory

Canal Area Court System

U.S. Attorney

U.S. Marshall

Clerk of Court

Bureau of Prisons

Foreign Broadcast Information System

Natlonal Ocasnlc & Atmospheric Administration

Total Non-DOD

Total DOD

Total DOD and Non-DOD

Cumulative OortB

9l3OlQl

($19,354,282)

(44,Q67,683)

3,8Ol,Q50

300,000

1,879,14S

4,632,saQ

(257,361)

0

(1,223,182)

(569,075)

(4,214.415)

2,664,358

597,870

18,g79

($S6,651,097)

634,052,07Q

$577.41 OS2

FY 92 AaY!lY

Cumulative Coata

QJoJ!Jg

($1,789.240)

(4,251,300)

254,284

265,645

($21,143,522)

(49,218,Q83)

4,056,234

300,000

2,134,7QO

662,645 5,295,534

0 (257,351)

0 0

(144,619) (1,367,801)

(62,300) (651,375)

0 (4,214,415)

41,493 2,705,851

87,484 685,354

0

($4,945,908)

75.QO8,3OQ

7fJggJ

($61,597,005)

7OQ.970.358

$640373,303



Property Transferred by Department of Defense and Fodsral Aviation Administration to the Rooublic of Panama Since October 1, 1979

Aclencv

Department of Defense

U.S. Army

U.S. Navy

US. Air Force

Total DOD

Federal Aviation Administration 4.636,360

Total $66.133.049

Cumulative Transfers Q/30/91

$46,266,046

4,930,769

275,874

51,4Q4,669

FY92 Transfers

Cumulative Transfers Q/30192

80 $46,266,046

7,600,COO 12,530,76Q

9,ooo 264,674

7,6OQ,OOO 59,103,6SQ

11 4.636,360

$7.609.000 $63.742.049



Property Transferred by the Panama Canal Commlsslon and Predecessor Organizations to the Rooubtic oi Panama since October 1, 1979

Acquisition Cost

Canal Zone Government and Panama Canal Company

Panama Canal Commisslon

Total

Canal Zone Government and Panama Canal Company

Panama Canal Commlssion

Total

Cumulative Transfers

Q/30/91 N92

Transfers

Cumulative Transfers Q/30/92

$166,317,629 30 8166,317,629

29.225,627 3.360.423 32.586,250

$197.643.458 t3.360.423 $200.903.679

Net Book Value

Cumulative Transfers

9/30/91 FY92

Transfers

Cumulative Transfers 9130192

$84,886,222 $0 $84,886,222

9,614.749 811,915 10.426.684

$94.500.971 8811.915 $95.312.886


:i:

-- Supplementary Information (Unaudited)

ichedules of Property, Plant, and Equipment

September3O,lQQ2 and lggl (Doiian in thousands)

Titier and treaty rights

Interert during conrlruction

Canal oxcevatlon, tilla and embankments

Canal structurer and equipment

Supporting and general tacliltier

Faoiiitlrs held tor future use

Plant additlonr In progress

Surpended conrtruction projects

TOTAL

- Eatimated

SONIce

l&i

1992 1991 DeprectaUon Depreciation

G.w! and valuation aiiowancor

and vaiuatton nccy

40 ym. $14,729 $7,066 $14,729 56.720

60,892 50,692 60,892

1%1OOyra.

4-100 yra.

349,155 165,666 346,240 157,264

389,242 178,647 170,779

3-100 yrr. 177,338 104,488

10-l 00 ym.

354,859

163,509

3,331

45,920

40.148

1,949 2,577

14,877

40.146

s525.303

(9170L2) Page 27 GAO/AIMD-93-22 Panama Canal Commission

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AIMD-93-22 Financial Audit: Panama Canal Commission's 1992 ... · B-114839 Scheduled Termination of the Commission As provided by the Panama Canal Treaty of 1977, the Panama Canal